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Landline Should Go For Net Revenue The accounting issue at hand in this case is revenue. Landline is offering call routing services for PRU and the former entity has to make some receipts from the services rendered. To put the issue at hand in context, revenue is generally the income received by any company from selling goods or services. In abroad sense, revenue is the income received by any commercial institution for the goods sold or services rendered. It is basically the incoming receipts generated from the services offered or goods sold. It is the core parameter of consideration in the event of evaluating the company’s health. There are two classifications of revenue and the situation in which Landline is requires serious…show more content…
Landline is essentially being outsourced by PRU for routing the calls of the latter yet PRU does not mention it in its marketing campaigns or any other strategic communications of the business. This leaves Landline as a fully-fledged contractor of the outsourced variety. From the relationship between the two companies where Landline submits 80% of revenue to PRU, it is clear that landline gives out commissions to PRU yet it does all the logistics of the daily running of the phone routing service. This puts Landline in a critical situation where the taxman comes calling and the customers who use primarily Landline’s infrastructure are not even aware o0f the existence of such a company. It would be wise for Landline to consider net revenues in the relationship it has with PRU. This way, landline will be able to determine the feasibility of the engagement in terms of profitability and viability much faster than if it went for gross revenue. Gross revenue would be false indictor of the financial position of Landline because 80% of the gross revenue belongs to PRU yet Landline does all the logistics of hiring and paying statutory bills. The journal entries that re important here are the number of seconds per call, the applicable statuary tax per on each call, the hardware and software resource requirements necessary to facilitate the call every second or minute, and the human resource cost applicable to making
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